A few days ago, while reading my newspaper, I found myself surprisingly absorbed with the further decline of the oil price, but even more with the wave of redundancies announced by major oil and gas companies. A few pages on, in a more interesting for me landscape, I was reading through the major transfers made this summer in the Premier League, when it occurred to me that in fact the two sectors share similar characteristics and that the current football industry could be a forewarning to the current oil crisis.
With the oil price on a ‘permanent leave’ since November 2014, the scenery has become ambiguous for every oil and gas professional who is a football fan. You may have spent the last three months, worried about your salary or the future existence of your position, whilst being compensated with a ‘hot’ summer in terms of massive transfer fees, higher than ever football wages and increasing football ticket prices. The once profitable oil and gas sector cannot guarantee a lucrative package anymore and because it is probably a bit late for a career change, it is intriguing to compare the two industries.
From one point of view, the two sectors are founded upon divergent economic principles and characterised by distinctive differences. They have a physical commodity covering a basic physiological need with a revenue stream influenced, that in large scale, is dictated by the demand and supply laws. Secondly, the two industries share a common feature, high costs and high compensations received by their professionals.
According to the FIFA transfer matching system (TMS), the total international transfer fees increased to £2.6billion for the period 2014-2015. However, the most interesting phenomenon is the rise in the associated salaries, which surpassed £3.93billion, over the term of the contracts. In other words, the industry is passing to a new trend, a trend which is characterised by the provision of a substantial salary to players, which is sometimes in total even higher than the transfer fees.
FIFA transfer matching system (TMS) estimated that there was a 33% rise in the value of salaries last season. As FIFA TMS general manager Mark Goddard clearly stated: “most of the transfers discussed in the media involve large transfer fees, but in reality, only 13 per cent of all worldwide transfers involve the payment of a fee. Salaries, though, are part of every single contract.”
The introduction of financial fair play and many other regulatory changes tried to set limits in capital spending from the side of the teams, but focus was given only on the transfer fees, leaving salary offers hitting the roof.
So how does that have anything to do with oil and gas you ask? This reminded me of discussion I had with a few oil and gas professionals regarding the main reasons of the oil crisis. The slump of the oil crisis was initially caused by a constant increasing supply, stemmed from the shale gas revolution which started in the USA and also the implementation of the new hydraulic fracturing technology, which combined with a lower than expected demand from the Asian markets. This caused an imbalance in terms of demand and supply, which pushed the price of oil down whilst capital spend remained high.
The high costs related to the oil and gas and football industry is an obstacle which requires a more viable economic plan. Furthermore, the expectations in terms of salaries, evolution and enhancements in the provision of services is creating a very demanding environment under which the industries need to survive.
Going back to football, this is especially the case in the UK, where competition is even higher for clubs forcing them to become an even more profligate consumer. UEFA figures show that English clubs have spent almost double to any other country, on international transfers during this summer, with transfer costs reaching £652million.
If you compare this to Spain’s £324million, a country which is at the top of the UEFA list, you will see from the latest disappointing results of English teams in Europe that the invested capital doesn’t translate to success. The same applies for the North Sea oil and gas industry and its latest figures. A lot of exploration, a lot of effort and a lot of capital spend, but no results.
So, there is a lesson to learn from the football industry. Increased spending, higher salaries and no investment in local talent, will makes oil and gas businesses dependent and vulnerable on non-domestic solutions and influential market conditions which cannot change in the short term. Ultimately, the key to building the foundations for a profitable industry requires investment on the domestic market and developing its people.
Keith Robertson is AVC media general manager of of media and sports productions.
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